Generally, charges are important for business vessels like companies when it comes to accessing financing for their ventures, operations and expansion. Charges allow companies to access debt financing and at the same time provides security for the lender or financier whose main concern is getting back their money. When a bank or financier extends money to a company to facilitate the acquisition of assets like property, cars, or printing press, such assets cannot be sold without the lenders permission. This is what is known as a fixed charge whose terms are set out in a security document called a debenture. In other cases, the lender may have facilitated the purchase of tradeable assets like stocks, raw materials, work in progress. The above tradeable assets are used by the company to generate business and trade hence it is prudent for the lender to have a floating charge on the assets rather than a fixed charge. A floating charge on the assets allows the lender to recover its money in the event that the assets are sold. In light of the foregoing, the criteria for determining the characterisation of a charge is the element of control. It follows that as long as the chargee exerts little control over the assets of the company, the charge will be categorised as a floating charge regardless of whether is a fixed one. The element of control thus remains to be the distinction between a fixed and a floating charge as I have gleaned from the different readings and course materials. For businesses seeking to finance the complexities of charges, seeking professional guidance like a business dissertation help provide the most valuable insights and assistance.
Normally directors are appointed in accordance with the company’s constitution and they take specific common law, fiduciary and statutory duties and responsibilities. A shadow director is a person in accordance with whose directions or instructions the directors of a company are accustomed to act. The High Court has held Vivendi SA and Centenary Holdings Ltd v Murray Richards and Stephen Bloch that a shareholder was a shadow director since he gave directions or instructions to the directors and thus owed fiduciary duties to the company. Interestingly, there is no statutory definition for a de facto director, instead, they are considered as a director in fact whether or not properly appointed and recorded as such. According to the Court of Appeal decision in Re Mumtaz Properties Ltd, a person will be considered to be a de facto director if he holding out as one, participates and assumes the status and functions of a director. It is a further requirement that the person must have participated in in directing the affairs of the company and exercised real influence in the corporate governance. In Smithton Ltd v Naggar, the Court of Appeal was faced with the question whether the director of a holding company had become a shadow or de facto director of a subsidiary. The court stated that there was no single definitive test for determining whether a person was a de facto or a shadow director. The above decisions, in my opinion, have blurred the lines between shadow directors and de facto directors. The courts appear to place more emphasis on the corporate governance system of the company in question to determine the type of directorship.
Directors of a company have both statutory and common law duties to the company and these duties can be enforced by the company through its shareholders or directors. In particular, directors have a duty of care which requires them to act in manner that is not negligent. In Re City Equitable Fire Insurance Co, the court ruled that the subjective standard of competence applied to duty of the director of care to the company. Following the ruling in Re D’Jan of London Ltd, the position at common law changed so that directors owe an objective standard of care based on what should reasonably be expected from a director in a similar position. On the authority of section 174 of Companies Act 2006, a director has a duty of care, skill and diligence which if breached attracts a remedy of damages. The above section appears to raise the bar when it comes to the duty of a director‘s actual skill, knowledge, experience, and attributes assessed on both subjective and objective basis. While Re City is no longer good law in accordance with the court’s decision in Equitable Life Assurance Society v Bowley and others, the standard set in the case seems to be a relaxed approach to the standard of care imposed on directors compared with the objective standard of competence as implied by section 174. The Companies Act now requires directors to be more competent and avoid negligent conduct in their roles as directors. Therefore, the bar is now higher under statute compared to the common law position previously but that does not mean that it is onerous.
Equitable Life Assurance Society v Bowley and others [2003] EWHC 2263 (Comm))
Re City Equitable Fire Insurance Co [1925] Ch 407
Re D’Jan of London Ltd [1994] 1 BCLC 561
Re Mumtaz Properties Ltd [2014] EWCA Civ 939
Smithton Ltd v Naggar [2014] EWCA Civ 939
Vivendi SA and Centenary Holdings Ltd v Murray Richards and Stephen Bloch [2013] EWHC 3006
Companies Act 2006
Continue your exploration of Legitimacy of Director Removal under Companies Act 2006 with our related content.
Idensohn K, The regulation of shadow directors. (2010) SA Mercantile Law Journal 22.3: 326-345.
Tsai F, An Examination of Company Law’s Deference to Directors’ Business Decisions: A New Perspective. Diss. (2019) Durham University
Zhuravel M, Fixed and floating charges as security mechanisms in corporate finance law in the United Kingdom. (2015) Юридична Україна.48,57.
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